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Tax treatment of cryptocurrency

28 February 2018

Cryptocurrency has seen an incredible surge in popularity amongst investors in recent months. The most popular of these virtual currencies by far is the bitcoin, although there are approximately 1000 others. In 2017, bitcoin rose in value by a staggering 1,600%, with a single bitcoin worth £7,641 as of 28th February 2018.

Although cryptocurrencies are currently unregulated, they are still subject to UK tax laws. As bitcoin can be obtained in two ways, HMRC regards each as different in terms of its tax treatment:

  1. Mining: a system which rewards users with bitcoins when they calculate complex algorithms to verify each transaction in the blockchain. HMRC regard this as a trade and will charge any profits made this way to income tax and national insurance.
  2. Purchasing: Bitcoins can be purchased by exchanging ‘real-world’ currency such as sterling. Any increase in its value will be liable to a 20% Capital Gains Tax, or 19% Corporation Tax if it’s a company doing the trading. This tax will only be due once the bitcoins are converted into another currency, including any another cryptocurrency.

Any tax liabilities arising from virtual currencies in the current tax year (2017/2018) will need to be reported and paid to HMRC by 31st January 2019.

HMRC have said that due to the evolving nature of the cryptocurrency market, they will likely produce further guidance in the future. The Treasury Committee has also announced an enquiry into digital currencies and how it can be regulated to protect consumers without stifling innovation in the industry.

If you need any further advice or guidance on cryptocurrency and its tax treatment, please get in touch with Sam on 01903 234094 or email sam@starboxaccountants.com

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